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It's really a myth that banks fund their loans through the savings accounts of customers. The 'liquidity' section of the article is misleading. See the bank of

• retube 13y ago
  Not necessarily. It depends on the institution. Some loans ARE made out of deposits. Those that aren't need to be funded in the money markets - you borrow from another financial institution to cover the amount lent out. Not sure the BoE paper makes that clear.
  • bocajuniors 13y ago
    Not really.The bank needs two kinds of government issued money.One is cash, to cover their clients withdrawals.The other is government issued electronic money(reserves) to cover transfers between banks(as demanded by clients).